Euro nears $1.20 in wake of Yellen, Draghi comments

NEW YORK (Reuters) - The U.S. dollar dropped to its lowest in roughly 16 months against a basket of major currencies and a more than 2-1/2-year low against the euro on Monday, following comments from central bankers on Friday and worries over Tropical Storm Harvey.

Detail of a European map, including Great Britain, is seen on the face of a Euro coin in London, Britain, January 31, 2016. REUTERS/Toby Melville

The greenback extended losses after tumbling on Friday after U.S. Federal Reserve chair Janet Yellen did not mention monetary policy at a summit of central bankers in Wyoming, moderating expectations the Fed will raise interest rates further this year.

European Central Bank President Mario Draghi's decision to hold back from talking down the euro at the central bankers' meeting in Jackson Hole, despite the currency's double-digit gains this year, continued to weigh on the dollar and sent the euro up as much as 0.5 percent on the day to $1.1983 Monday EUR=, its strongest since January 2015.

The dollar also weakened after Tropical Storm Harvey paralyzed Houston, Texas, the nation’s fourth-biggest city, spurring worries about the storm’s potential impact on the U.S. economy. The dollar index, which measures the greenback against a basket of six major rivals, fell as much as 0.6 percent to hit its lowest since May 2016 of 92.184 .DXY.

“In general, what you’re seeing is a consistent tone of dollar weakness,” said Kathy Lien, managing director at BK Asset Management in New York.

“The disappointment from Yellen at Jackson Hole on Friday has carried over to trading this week,” Lien said, adding that Draghi’s remarks continued to underpin the euro while the impact of Harvey was weighing slightly on the greenback.

A public holiday in global foreign exchange capital London kept trading volumes thin, analysts said. The euro was broadly expected to remain firm in the short-term as investors focused on the ECB and whether it will announce plans to reduce debt-buying at its September policy meeting next week.

“If you believe that traders were positioned for Draghi to talk down the euro, then they have to cover their positions,” said Axel Merk, chief investment officer of Palo Alto, California-based Merk Investments. “There is going to be reduction of (quantitative easing), and there is going to be hiking of interest rates” in Europe, he added.

The greenback was last down 0.2 percent against the yen at 109.08 yen JPY=, off an eight-day high touched on Friday of 109.84 yen. Investors were also looking ahead to Friday's August U.S. non-farm payrolls report for further trading incentives.